US dollar index set for biggest annual gain since 2015

The dollar was on track for its biggest annual gain since 2015 on Friday, in the last trading day of a year dominated by Federal Reserve rate hikes and fears of a sharp slowdown in global growth.

European stock indexes were in the red in early trading on Friday. Asian equities had risen earlier in the session after market sentiment on Wall Street got a boost on Thursday from data showing rising US jobless claims, which suggested the Fed’s interest rate hikes were lowering demand for labour.

Traders were also focused on the outlook for China. Optimism about the country’s reopening after three years of strict Covid-19 curbs has been tempered by surging infections which threaten more economic disruptions.

The United States, South Korea, India, Italy, Japan and Taiwan have all imposed Covid tests for travellers from China. The World Health Organization said it needs more information to assess the latest surge in infections.

In thin trading, the dollar index was down around 0.1 per cent on the day at 103.900.

The US Federal Reserve raised rates by a total of 425 basis points since March in an attempt to curb surging inflation.

Against a basket of currencies, the dollar has gained around 8.6 per cent so far in 2022 ­— its biggest annual jump in seven years ­— but it has pared some gains in recent weeks as investors expect the Fed’s rate-hiking cycle to end next year.

“I expect the king dollar to lose its crown and the dollar to make a more decisive turn by the middle of next year,” Bank of Singapore currency strategist Moh Siong Sim said.

The euro was flat on the day at $1.066, on track for a 6.2 per cent annual loss versus the dollar, compared to last year’s 7 per cent drop. A combination of weak eurozone growth, the war in Ukraine, and the Fed’s hawkishness has put the euro under pressure this year.

European Central Bank policymaker Isabel Schnabel said last week that the central bank must be prepared to raise interest rates further, including by more than the market expects, if that is needed to bring down inflation.

The Swiss National Bank increased the amount of the Swiss currency it sold in the third quarter of 2022, the central bank said on Friday, indicating that its focus has switched from stemming the franc’s strength to fighting inflation.